Introduction to Company Law in Papua New Guinea

When an individual or a group of people decide that they want to engage in business, one of the first questions that must be decided is what form of business organisation to use. There are various types of legal entities that may be used, each with its own advantages and disadvantages; and not every entity will suit the person’s business, financial and family needs. The single individual or group may decide to trade on their own account, i.e. in their own name (Vada Henao) as a sole trader (or sole proprietor), or under a registered business name (Vada Henao Builder or even Gut Haus Bilders). The group may decide to establish a formal partnership1 or even a co-operative if they meet the necessary requirements.2 In all of these cases except co-operatives, no separate legal body is formed: the individuals continue to contract and incur debts and liabilities as individuals and therefore remain personally liable for the obligations they incur. Provided that the requirements set out for an incorporated land group or business group are established, the individuals may decide to form such entities.3 If the individual or group of persons decides to form a company under the Companies Act 1997, a separate legal person comes into existence, and that entity will become liable for any debts or obligations it incurs. Furthermore, the persons who set up (incorporate) the company will not normally be liable for any of the debts or liabilities incurred by the company. The company will be able to buy and sell property on its own account. The persons who own the company will not directly own these assets but will own “shares” in the company which will entitle them to control what the company does.